SUMMARY OF IOWA AUTOMOBILE DEALERSASSOC. AND IOWA DEPARTMENT OF REVENUE AND FINANCE MEETING

MARCH 18, 2004

I. FAMILY TRADES:

1. Policy: Department’s policy: for a trade to be effective the name on the title of the vehicle to be traded must be the same as the newly acquired vehicle being traded.

2. New Policy Caused Problems: As you know this thinking caused a great deal of problems out there. As a result, the department did some thinking regarding family trades and the department has become a little more reasonable.

3. REVISED POLICY:

a. HUSBANDS AND WIVES:

All Trades Involving husbands and wives where the traded vehicle and the acquired vehicle are kept titled in the name of the spouses in some form and no outside party is named on the title are now allowed. As long as one of the spouses is on the title of the vehicle to be traded, regardless of if there is an “and” or and “or” the trade is allowed. HERE ARE THE ALLOWABLE TRADE-INS FOR TAX PURPOSES:

TITLE OF VEHICLE TO BE TRADED / TITLE OF NEWLY ACQUIRED VEHICLE
HUSBAND OR WIFE / HUSBAND OR WIFE
HUSBAND AND WIFE
WIFE
HUSBAND
HUSBAND AND WIFE / HUSBAND AND WIFE
HUSBAND OR WIFE
WIFE
HUSBAND
HUSBAND / HUSBAND
HUSBAND AND WIFE
HUSBAND OR WIFE
WIFE
WIFE / WIFE
HUSBAND AND WIFE
HUSBAND OR WIFE
HUSBAND

However, please note that if an individual’s name that is not a party to the marital relationship is put on the title of the newly acquired vehicle, then the exemption is lost. And tax is due on the entire purchase price with no credit for a trade-in allowance. ONLY HUSBAND AND WIFE AND NOT A THIRD PARTY!

b. KIDS and Lineal Family Members:

Big changes as the result of our Meeting with IADA on 3/18/04!

The trade of a vehicle in the name of a great-grandparent, grandparent, parent, or child, including adopted and step relationships, are allowed as long as the name of one of the family members from the title of the traded vehicle carries through and is on the title of the newly acquired vehicle.

Please note that this exemption is only for lineal relationships (up and down the trunk of the family tree) and that the exemption does not extend to non-lineal relatives (the branches of the family tree). Consequently, this exemption would not be extended to brothers, sisters, aunts, uncles or cousins that may be first, second, or third generation removed.

Summary:

Two criteria for a family trade to be valid:

  1. One name carries through on the title from the trade to the newly acquired vehicle.
  2. Any new party on the title must be a lineal relative.

Examples of Allowable Trades:

TITLE OF TRADED VEHICLE / TITLE OF NEWLY ACQUIRED VEHICLE.
Grandma or Grandpa / Grandma or Granddaughter.
Mom or Dad / Mom or Daughter
Dad or Son / Son

Examples of Trades Not Allowed:

TITLE OF TRADED VEHICLE / TITLE OF NEWLY ACQUIRED VEHICLE
Grandma or Grandpa / Grandson
Mom or Dad / Daughter
Mom or Dad / Son-in Law
Mom or Dad / Cousin

II. Business Transfers:

The department takes a tougher view of business transfers because we are dealing with distinct business entities and less likely of a gift occurring in this type of business arrangement.

A. Sole Proprietorships: Please know that the department will treat the individual and the sole proprietorship as one in the same for vehicle and use taxes. As a result, the owner of the sole proprietorship can trade a vehicle in his personal name towards the purchase of a vehicle and the new vehicle can be put in his name, the sole proprietorship name or both.

So you can have any of the following combinations of names on the trade or purchased vehicles:

OWNER

SOLE PROPRIETOR

OWNER AND SOLE PROPRIETOR

OWNER OR SOLE PROPRIETOR

B. Any other business or entity: These transfers are more scrutinized

TRANSFERS OF VEHICLES (not trade-ins): Any other business entity, such as a partnership, corporation, or LLC, the ownership on the vehicle must be the same. The only time that there can be a tax free transfer of a vehicle from a business entity or individual to a business entity is if it meets the one year to a new business requirement under the Iowa Code. (423.4). To be exempt it must:

  • Be to a new business entity
  • Within one year of date of start-up
  • All ownership must be the same
  • The new business is to carry on the business of the old business entity.

So John Smith dba “John’s Plumbing” has a truck in the name of John Smith dba John’s Plumbing. John decides he wants to incorporate his plumbing business. He can receive the transfer of the vehicle free of use tax as long as he transfers the vehicle within one year of filing the incorporation papers with the Secretary of State’s office and the ownership of the business stays the same. If John allows his brother to become a shareholder in the new corporation or in addition to plumbing John also starts a pool business in the corporation, then the exemption cannot be claimed.

Tax Base: If there is a loan outstanding, the amount of the remaining loan is the tax base. If there is no loan, then the FMV is the tax base.

TRADE-INS:

There are other trade-in issues when a business entity is involved. A corporation that owns a vehicle cannot trade that vehicle in for a stockholder to purchase a new vehicle in the stockholder’s name or vise versa. These are separate entities.

When a business is involved, the names on the title of the trade-in and the newly acquired vehicle must be the same, except for the sole proprietorship examples listed above.

Tax Base: The value full purchase price of the vehicle without any deduction for the trade-in.

III. THE USE OF “AND” OR “OR” IN A TITLE:

OR: When a title to a vehicle has the word “or” in between the two or more names, each person or entity (even a business) owns 100% of that vehicle. As a result, when that vehicle is traded in towards the purchase of another vehicle and the new vehicle is in the name of one or all of the names on the title of the traded vehicle, the trade-in credit is allowed. For example the following trade-ins are correct:

TITLE TO TRADED VEHICLE / TITLE OF NEWLY AQUIRED VEHICLE
Bob or Mary or Jim / Bob,
Bob or Mary,
Bob and Mary
Bob or Mary, or Jim
Bob and Mary and Jim
Mary or Jim
Mary and Jim
Jim
Mary
Bob or Jim
Bob and Jim
Mary or Jane / Mary
Jane or Mary
Jane and Mary
Jane

The trade-in credit will not be allowed if a person not on the title of the traded vehicle is added to the newly acquired vehicle. The following trade-ins are not allowed:

TITLE TO TRADED VEHICLE / TITLE OF NEWLY ACQUIRED VEHICLE
Mary or Bob / Mary and Jane
Mary or Jane
Mary or Bob / Mary, or Bob, or Jill

BUSINESS NAME AND THE USE OF “OR”: This credit applies even if one of the names on the traded vehicle is in a business name and the names are joined by “or”. However, like in the individual examples, above, the addition of a third party that was not on the title of the traded vehicle, results in the trade-in credit not being allowed for tax purposes. The following examples are allowable trade-ins:

TITLE TO TRADED VEHICLE / TITLE OF NEWLY ACQUIRED VEHICLE
Corp. A or John Smith / John
Corp. A
Corp. A or John Smith

The following are examples of trade-in credits that are not allowed:

TITLE TO TRADED VEHICLE / TITLE OF NEWLY ACQUIRED VEHICLE
Corp. A or John Smith / Corp. A or John or Mary
Corp. A or Mary

AND: When “and” is in between two or more names on a title to a vehicle that was traded no trade-in credit is allowed unless the newly acquired vehicle is in the same names as the traded vehicle.

IV. OTHER SUBJECTS OF CONCERN:

a. Prorated plates: Exemption 7 applies to the power units and trailers regardless if the individual wants to have a prorated or county plate. If the customer elects to get a county plate then they must meet the 13 ton weight requirements and the 25% mileage outside of Iowa factor before they can claim this exemption. This exemption applies even if the customer changes from a prorated to a county plate.

Please Note that if the customer does not maintain the mileage requires for the first four years of operation, then use tax is due on the book or fair market value of the vehicle, which ever is less.

b. Vehicle kits: The purchase of a vehicle kit is subject to Iowa sales if purchased in Iowa or use tax if purchase out of state. Once the kit is assembled and becomes a vehicle subject to registration, vehicle use tax is due. If the customer can provide a copy of the invoice for the kit, equipment and parts that shows that Iowa sales or use tax has been paid, then exemption 8 applies. Simply attach copies of the invoice to the UT-510 exemption form and send it to the field office. If the customer cannot provide evidence of tax having been paid, then tax is due on the book or fair market value of the vehicle.

c. Consideration: This is a very broad topic. Basically, consideration is anything of value. It can be the gift of money, service, exchange, the act of forbearance. In general terms, both or all parties to the transaction receive something of value.

d. Claims for Refund: If a customer claims to have paid vehicle use tax in error, they must file an IA843 sales/use tax claim for refund form. This form needs to completed and sent to the department along with any corresponding documentation. For a vehicle, such documentation may include a copy of the registration and a written statement from the dealership indicating that the purchase had been refunded to the customer. To be eligible for a refund of use tax on a vehicle purchase, the dealer must refund 100% of the purchase price of the vehicle.

e. Used Car Dealer Purchases a New Vehicle and Trades:

Can a used car dealer purchase a new car? This is not for IDRF to determine. This is an area regulated and should be determined by the Department of Transportation.

The used car dealer does not get the resale exemption because the dealer is not licensed to sell new vehicles. But a used car dealer may use a trade-in credit by trading one or several used cars in his inventory for the purchase of a new car. A trade-in is an exchange for value and constitutes consideration and a sale for Iowa use tax purposes. Consequently, if a dealer does trade a used vehicle towards the purchase of a new vehicle, the tax base would be the purchase price of the vehicle minus the trade-in allowance.